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Oil Price Shocks, Real Economic Activity and Uncertainty

Abstract : This paper develops a structural factor vector autoregressive (SFVAR) model to study the effect of oil price shock on economic activity. The model allows both types of uncertainty (real economic activity and oil price) to directly affect oil prices and economic activity. More importantly, the factor variable, which is akin to the macroeconomic uncertainty measure of Henzel and Rengel (2017), captures the significant indirect spillover effects of both supplyrelated (oil prices) and demand-related (business cycle) shocks on oil prices and economic activity. By incorporating the indirect effect of this macroeconomic uncertainty, the response of economic activity to oil price shocks is amplified. In some countries the real effect is prolonged. Results for net oil exporting (importing) countries show that an oil price hike has an appreciably positive (negative) effect on economic activity. The factor dynamics of all countries, except for France, are highly correlated with each other, while they are all moderately correlated with some commonly used measures of macroeconomic uncertainty.
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https://hal-audencia.archives-ouvertes.fr/hal-03284089
Contributor : Amelie Charles Connect in order to contact the contributor
Submitted on : Tuesday, July 13, 2021 - 3:47:07 PM
Last modification on : Friday, October 8, 2021 - 6:50:15 PM
Long-term archiving on: : Thursday, October 14, 2021 - 6:08:24 PM

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Amélie Charles, Chew Lian Chua, Olivier Darné, Sandy Suardi. Oil Price Shocks, Real Economic Activity and Uncertainty. Bulletin of Economic Research, Wiley, 2021, 73 (3), pp.364-392. ⟨10.1111/boer.12252⟩. ⟨hal-03284089⟩

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